Why Irish Companies need to consider Trade Credit Insurance
Trade credit insurance, also known as credit insurance or export credit insurance, is a type of insurance policy that protects businesses against the risk of non-payment by their buyers. Here are some reasons why it can be important for Irish businesses to have trade credit insurance:
Mitigates Credit Risk: Businesses extend credit terms to their buyers to promote sales and build relationships. However, this exposes them to the risk of non-payment if the buyer defaults. Trade credit insurance helps mitigate this risk by providing cover for losses resulting from non-payment.
Facilitates International Trade: For businesses involved in international trade, there are often additional risks due to factors such as political instability, foreign exchange fluctuations, and legal uncertainties. Trade credit insurance can help navigate these complexities and provide a safety net for cross-border transactions.
Improves Cash Flow Management: Having trade credit insurance allows businesses to confidently offer credit terms to their buyers. This can lead to increased sales and revenue, as buyers are more likely to purchase goods or services when they have the option to pay later. It also aids in better cash flow management as businesses can anticipate payments.
Enables Access to Financing: Trade credit insurance can enhance a company's creditworthiness in the eyes of banks and financial institutions. This can lead to improved access to financing and better terms for loans or credit facilities.
Protects Against Insolvency: Insolvency of a key customer can have a significant impact on a business, especially if that customer represents a substantial portion of their revenue. Trade credit insurance provides a safety net in case a customer goes bankrupt or enters into a financial crisis.
Supports Expansion into Riskier Markets: Trade credit insurance can be particularly valuable for businesses looking to expand into markets that are perceived as higher risk due to factors like economic instability, political unrest, or weak legal systems.
Enhances Supplier Relationships: For businesses that are suppliers, offering credit terms can be a competitive advantage. Having trade credit insurance in place reassures suppliers that they will be paid even if the buyer encounters financial difficulties.
Protects Against Unforeseen Events: Unexpected events such as natural disasters, pandemics, or other unforeseen circumstances can disrupt supply chains and impact a buyer's ability to pay. Trade credit insurance can provide a safety net in such situations.
Boosts Confidence in the Supply Chain: When suppliers know that they have credit insurance cover, they may be more willing to take risks with new buyers or expand their existing relationships. This confidence in the supply chain can lead to more dynamic and mutually beneficial partnerships.
Stabilises Profit Margins: By protecting against non-payment, trade credit insurance helps stabilize profit margins and prevents significant losses that could result from defaulting customers.
When asked to comment, Sinead Wolfe Head of Trade Credit Insurance at LHK Group said “Trade credit insurance is an important tool for all businesses selling their goods and services on credit, especially those who are expanding rapidly, taking on new customers, and selling over-seas. The key is to make sure that the business and people in question are genuinely creditworthy to start with. Businesses can quickly go from being creditworthy to insolvent and knowing you have a Credit Insurance partner that can protect against this, allows businesses to confidently extend credit terms, remain competitive, expand into new markets, and protect against unforeseen events. The great thing is that it costs nothing for a business to explore the options and costs involved versus the risk of non-payment.”
Get in touch with us now
If you would like to discuss your businesses unique trade credit insurance requirements further, please contact us at LHK Group offices at 12 Trinity Street, Drogheda.
Sinead Wolfe CIP
041 987 4111